Multitel International Holdings Inc., Oneheart Multi-Purpose Cooperative, Inc., Star Enterprise Multi-Purpose Cooperative, Inc., Everflow Group of Companies, Inc.

SECURITIES AND EXCHANGE COMMISSIUN SEC Building, EDSA, Greenhills Republic of the Phitippines Mandaluyong City 10R KALATAAN MULTITEL INTERNATIONAL HOLDINGS, In the Matter of: MULTI-PURPOSE COOPERATIVE, INC. and INC. COOPERATIVE, INC., STAR ENTERPRISE EVERFLOW GROUP OF COMPANIES, INC. ONEHEART MULTI-PURPOSE CED CASE NO. 02-2718 CEASE AND DESIST ORDER against Multitel Intemational Holdings, Inc. ("MIH") and its alleged conduits ("CED") of this -Commission for issuance of a Cease and Desist Order ("CDO") Oneheart Multipurpose Cooperative ("Oneheart"), Everflow Group of Companies, This resolves the motion of the Compliance and Enforcement Department Inc. ("Everflow"), Star Enterprise Multi-Purpose Cooperative ("Star"). A copy of the said motion, its Annexes and other supporting documents, is attached and made an integral part hereof as Annex " A". 3, 2001 under SEC Registration No. A200113093 with principai office at Unit 2, 8F MIHI is a holding corporation registered with the Commission on September Enterprise Tower 2, Ayala Avenue cor. Paseo De Roxas, Makati City, whose primary purpose is: mortgage, pledge, exchange, or otherwise dispose of personnl property of every kind and description, including shares of stock, bonds, debentures, notes, evidences of indebtedness, contracts and other securities and obligations of any corporation, partnershtip, company or association, wvhiethrer domestic or foreign for whatever lavuful purpose or purposes thre same may have been organized; and to pay therefore (sic) in interest, dividends abd (sic) income arising from such property and investments and ta money or by exchanging therefore (sic) in stocks, bonds, indebtedness or securities, and volile the ovoner or holder of such notes, evidence of indebtedness contrncts and othrer "To invest in, purchase or otherwise acquire and hold, use, sell, assign, transfer, securities and obligations of any corporation; to receive, collect and dispose of the possess privileges of owmership to the extent authorized by law, without however engaging in any banking or guasi-banking activities, nar shail the corporation engage in business_as an investment company._as defined in_the Investment Company Act (RA 2629) without complying with the provisions of the said act provided it shall .not engage in_stock brokerage and dealer in securities" (Emphasis supplied) Everflow is also a corporation registered with the Commission in 1992 under SEC Registration No. ASO92-07398, with principai office at the Ground Floor, Electra House Bldg., 115-117 Esteban cor. Herrera Sts., Legaspi Village, Makati City, and whose primary purpose is: advisers, independent coniractors or otherwise a general nanagement and investnent properties and investments and to engage in consuitancy and advisory work in consultant and ndvisory business relating to the operation of business, plants, connection with the organization, * financing. management, operation andi reorganization of industrial and commercial enterprises and to manage and provide management for and supervise all or party (sic) of any and every kind of business or partnership, or indtvidual for the management, conduct, operation and supervision of all kinds of businesses and comsultants except management of funds, security and investment enterprise, and to contract or arrange writh any corporation, association portfolio of (sic) management. Provided that the company shall not engage in dealer in gou't securities and/or fund/portfolio manager." (Emphasis supplied) "To carry on, in its owm behalf and in behalf of others, uhether an agent, consultants, the business of being securities advisor, stock broker/dealer, investment house. Development Authority ("CDA") with office address at Unit 2504, 25th Floor, 88 Cooperation stete that Oneheart was formed for the following purposes: Corporate Center, 141 Valero Street, Salcedo Village, Makati City. Its Articies of Oneheart is a multi-purpose cooperative registered with the Cooperative "1. To encourage thirift and savings mobilization amomg the members for capital 3 To engage in various income generating and self-liguidating livelihood projects; To create funds in order to grant ioans for productive md providential purposes to To promote the cooperative as a way of like (sic) for improving the social and formatior To do any related activity for the member's seif-government, improve social and/or economic well-being under a truly just democratic society; To work with the cooperative movement, non-govemment and government each member economic well-being of the people: organizations/entities in the promotion and development of cooperatives and in To undertake other activrities for the effective and efficient implementation of the provisions of the Cooperative Code. " carrying out govermment policies; and principal office at Unit 201, Citiland Condominium III, 105 Herrera St., Legaspi Village, Makati City, and which was formed for the following primary purposes: Star is also a multi-purpose cooperative registered with the CDA, with "1. To engage in any income generating activity in line with tlhe cooperative interest: 3 N To create funds in order to grant loans for productive and providential purposes to To encourage thrift and savings mobilization among tre members; 4. To provide quality consumer goods and other servrices needed by the members." its members MIH, Everflow, Oneheart and Star have interlocking incorporators or cooperators, stockholders or members, directors and officers who are inextricably connected in one way or another to the ownership, management or operation of Multinational Telecom Investors Corporation ("Multitel"), a corporation against which a CDO has been issued by the Commission and which is now facing revocation proceedings before the Commission. 2 Saturnino and Rosario Baladjay, who are also the controlling stockholders of Multitel, as reflected in the latter's Generai Information Sheet for the year 2000. Rosario Baladjay is aiso the Chairperson and President of both MIHI and Multitel subscribed capital stock, which is equivalent to P49,999,700.00, is held by Spouses Conrado Ariola, an incorporator of Everflow, is also a stockholder, director and Corporate Secretary of Multitel. Julius Gonzalo Fuentebella and Marissa Castulo, both incorporators and nominal stockholders of MIH, are cooperators and directors of Oneheart. Jose Rico, a first-degree cousin of Rosario Baladjay, is a cooperator and SMB Security and Protective Agency, Inc., another corporation controiled by the Is aso a director. director of Star and one of the original investors of Multitel. He is also a director of Baladjay spouses, where Rodulfo Pagtalunan, an incorporator and director of MIHI, The Articles of Incorporation of MIHI reveal that a total of 99.99% of its on March 8, 2001 after it was found in an earlier investigation conducted by the CED particularly those which prohibit it from sourcing investments from more than to have unlawfuty solicited and accepted investments fron the public, in violation of its franchise and the provisions of the Securities Reguiation Code ("SRC") nineteen (19) non-quaified buyers or lenders. This CDO was ifted after Multitel However, a CDO was again issued against Multitel on January 15, 2002 after undertook to reduce the number of its investors to the required nineteen (19). investigators discovered "that Multitel persisted in soliciting and accepting investments from the public (i.e., more than 19 investors) through conduit entities, exceed 19, Multitel does not allow individual investors to invest directly. Instead, the including Everflow, Oneheart and Star. To make it appear that its investors do not conduit entities accept individual investments in Multitel for the account of their individual clients to whom they issue receipts of investments or fund receipts as evidence of indebtedness. The conduit entities then remit their collections to Multitel, 15, 2002 CDO became permanent on Jaruary 24, 2002. which then issues postdated checks directly to the individual investors. The January Records of the Commission show that Multitel became the subject of a CDO public against grave or irreparable injury or prejudice, the Commission issued on January 15, 2002 a CDO enjoining Multitel from further accepting investments from the public. Everfiow, Oneheart and Star, as conduits of Multitel, fell within the purview of the CDO, which was made permanent in an Order of the Commission To prevent the commission of further violatioris and to protect the investing dated January 24, 2002. force, the Commission received persistent reports that Multitel continues to offer and solicit investments from the public and to accept deposits and investment placements, albeit under another name, MIHI. The reports further indicated that most of Muititel's placements and accounts were transferred to MIHI. After the CDO was issued and made permanent, and even as it remains in another investigation of the operations and activities of MIHI as well as that of These reports prompted the Commission to direct the CED to conduct 3 Everflow, Oneheart and Star, which, according to the reports, persist in accepting and soliciting investments from the public on behalf and as conduits of MIHI. was able to verify that indeed, MIHI, under the stewardship of its Chairperson and CEO, Rosario Baladjay, is engaged in the offering and sale of investment contracts, facilitation by its conduit entities consisting of related corporations and cooperatives and other entities or individuals including Everflow, Oneheart and Star. and the solicitation and acceptarice of deposits or placement of investments from the general public, for its own account or through the use of, in connivance with and Based on the documents gathered in the course of the investigationi, the CED operations of MIHI and its conduits, including Everflow, Star and Oneheart: The trail of documents secured by the CED reveals a telling picture of the P10,000 or a "double-your-money" rate in case the investor opts to avaii himself of the 18-month Iotk-in investment scheme. MIH makes this offering to the public whose agents (designated as "Counselors") have executed a "Counselor's regarding MIH, its investors and counselors, and agrees not to use the name of been pre-approved by the Board of Directors" of MIHI. offering a whopping 4% guaranteed monthIy interest for a minimuim investment of through its sipposed "marketing institutions", like Everflow, Oneheart and Star, Accreditation Agreement with MIHI's Chairperson and CEO, Rosario Baladjay. Under the agreement, the individual counselor, who is nominated for accreditation by an institutional agent duly recogrized by MIH (like Everfiow, Oneheart and Star), undertakes to, among others, offer and sell MH investment contracts to the public at the basic interest rate discussed above, keep confidential all information MIHI or that of the institutional agency without prior notice to or authorization by MIHI's Board of Directors or "to use any calling card, Ids, flyers, materials for facsimile distribution, or any form of advertising or marketing tool which have not As shown by the Fliers distributed to the public, MIHI attracts investors by MH-I, servicing of interest payments and the retum of invested capital are Termination Transmittal Report (the "Report"), which is actually a memorandum of accomplished likewise through the facilitation of the conduit entities. A Daily a conduit entity to MIH, is prepared whereby the names of the investors, their corresponding investments, the name of the individual counselors through which the After the investments are received from individual investors and remitted to investments were made, the dates their fund deposits were entered and the fund deposit numbers assigned to them are transmitted to MIHI. The Report is verified by a staff of the concerned conduit entity and duly noted by its authorized officer before it is finally sent to MIHI. Receipt of the Report is supposed to be acknowledged by MIHI but no officiai acknowiedgement is made because the Chairperson and ' Refer to Annexes "E" and its sub-annexes "E-1" to "E-10", "F", "G" and its sub-annexes "G-1" to "G-7" "H", "" and its sub-annexes "-1" to "110", -J" and its sub-annexes "J-1" to "J-5","K", "L, "M", "N", "O" annexes "S-1" to "S-2", "T", "U", "V", "W", "X"" and its sub-annexes "X-1" to "X-2", "Y" and "Y-2". "Z", "AA" and "BB" of the CED Motion "P", "Q" and its sub-annexes "Q-1" to "Q-9", "R" and its sub-annexes "R-1" to "R-s", "S" and its sub- President of MIHI, Rosario Baladjay, discouraged this practice to avoid paper tail. In addition to the Report, Everfiow in particular prepares for its own consumption a daily Summary of Termination for Payment to reflect the day's transactions relative to the payment of individual investments in conformity with the Report. Upon receipt of the Report, MIHI issues the List of Terminated Investments (the "List"), which is a document validating and acknowledging for payment the terminated investments contained in the Report to facilitate the release of the amounts (principal and interest) due to investors to the conduit entity, which would in turn make the actual payment. The List is usually stamped "Approved for Payment" by MIHI's Chairperson and President, Rosario Baladjay, although it is MIHI's comptroller, Villa Inguillo, who signs for the former. Together with the List. MIHI issues a Peso Cash Transfer Slip or Dollar Cash Transfer Slip (the "Slip"), which authorizes the transfer of funds to the claiming conduit entity in accordance with the Report and the List. This used to be presented to MHI's maintaining bank for payment. Lately however, clearing for payment is transacted on cash basis mainly at the residence of Rosario Baladjay at No. 309 San Antonio St., Ayala Alabang Village, Muntiniupa City.3 Upon receipt of the funds for payment, the conduit entity executcs an Acknowiedgment Receipt. The investment of a certain Nancy Zabala is illustrative of this flow of transaction between MIHI and one of its conduit entity, Everflow. Ms. Zabala made an investment placement of $884.00 with MIHI on December 26, 2001 through Everflow with Iris Z. Aquino as her counseior. The placement was remitted by Everflow to MIHI and was designated.by the iatter as Doiiar Fund Deposit No. 3328. The investment, together with the interest due thereon (for a total of $920.54), was due to mature on July 30, 2002. Thus, the day before such date, or on July 29, 2002, MIHI included and entered Ms. Zabala's investment in the List of investments that are due for termination on July 30, 2002 through Everflow (Annex "I-9" of CED Motion), and approved the same for payment through the imprimatur of Villa Inguillo signing on behalf of Rosario Baladjay. To facilitate the release of funds, MIHI issued a Dollar Cash Transfer Slip on actual termination date (Arnex "K" of CED Motion) of the said investment. Everflow thereafter received the funds for payment to Ms. Zabala on behalf of MIHI, as evidenced by the Acknowledgement Receipt it executed in favor of MH. It is worth noting at this juncture that the documents gathered by the CED not only exposed the connivance between MHI and its conduit entities, particularly Everfiow and Oneheart, but also belied MIHI's assertions that it orly begun 0perating in Fiscal Year 2002 as some of the investments in the various Lists reflected placements made with MIHI in 2001, mostly in the months of November and December, after Multitel already assumed an undertaking before the Commission that it will desist from sourcing investments from more than nineteen lenders. 2 As confirmed by Atty. Danilo Eliacer, Everflow's corporate legal counse! on August 2, 2002 to CED nvestigator Edwin Fiorida 1b 5 ruie, as the names of investors with either Dollar or Peso deposits reflected in the Lists account for a total of one hundred nine (109) investments or Fund Deposits. More importantly, the documents show that MIHI breached the 19-lender reach the investing public. In the Vol. 1 No. 1 issue of "The Rainmaker", the official MIHI is evident from MIHI's admission that it utilizes "marketing institutions" to newsletter of the MuItitel Group of Companies, MHI identified eleven (l1) marketing: institutions composed of cooperatives and corporatiors that are of MIHI's transaction system, Institution Front End System (IFES) for the tellers of the "marketing institutions" and Investment Tracking System (ITS) for MIHI, detail considered front ends for Multitel's investment transactions. Among those identified are Everflow, Oneheart and Star. The illustrations provided therein on the workings The use of related entities to channei funds from the individual investors to the process flow from solicitation of investments by counselors, to actual placements with MIHI and release of investment contracts until the servicing of interests and termination of investments (Annexes "G" to "G-7" of the CED Motion). conduit relationship between MIHI and Everflow is further confirmed by the The employment by MIH of conduits and the existence of a principal. exchange of correspondence between MIHI Chairperson and President Rosario Baladjay and Everflow Chairman Iris Z. Aquino. In a letter dated May 24, 2002. Rosario Baladjay informed Iris Aquino thus: "Dear MS. IRIS AQUINO: This is to formally inform you that effective immediately you will no Ionger may have entered using Multitel's name. be a conduit of Multitel thus we will not anymore honor any transactions you From now on all terminations including those already submitted will be handled by the Alabang office and will orly be given directly to the investors No funds will be transferred to you until all investors' terminations/interests have been settled and audited. XXXXX Very tuly yours. (Sgd.) ROSE A. BALADJAY" The following day, Iris Aquino wrote back thus: "Dear Ms. Baladjay? Thank you for the official termination of our business relation that it is EVERFLOW they were transacting business with. If you will not settle directly at your residence is not ACCEPTABLE to our investors, since they reason out Please be informed that your unilateral intention of setting termination 1 Inatters and this roill blow up everything. and/or pay terninations & interest filed by our end by Monday, Uou are compiicating will happen. You shouid not do to Everflow wohat you haDe done to MULTILINK Your illegal nightly operation will come to fore and I will be very sorry if that lies on our shoulders. You will be courting disaster if you misconiprehend thtis situation. Do remember that transactions were coursed thiru Everflow and responsibility xxxxx (LInderscoring supplied) (Sg d.) IRIS Z. AQUINO" Everflow, Oneheart and Star, place investments in MfHI not for their own accounts and Iris Aquino, it is evident that (a) the "marketing institutions", which include From these admissions in the newsietter and in the letters of Rosario Baladjay investment channels between MIHI and the individual investors and in fact act as agents for both, (c) both MIHI and the conduit entities are fully cognizant that MIH's operations are tainted with illegality, and (d) the conduit entities, despite but for the account and on behalf of individual investors recruited by their individual agents or counselors, (b) the "marketing institutions" are in fact the such knowledge, willingly allow themseives to be used by MH for its illegal operations. the operations and activities of Multitel and used the same network or layer of related companies and cooperatives after the iatter undertook to desist from committing further violations of the 19-lender rule, which was one of the pre- The same issue of "The Rainmaker" validated the reports that MIHI took over conditions of the Comnission for the lifting of the earlier CDO issued against investor established and operating since the last quarter of 2000." Multitel on March 8, 2001. The newsletter categorically stated that "Multitel International Holdings, Inc. or Multitel Holdings is the investment channel of Multinational Telecoms Investor_Corporation, the Philippines' leading lending MIH's assumption of investment contracts and transactions originally Star, when he was interviewed by CED investigators on June 17, 2002. Jose Rico pertaining to Multitel is corroborated by statements made by Jose Rico, Chairman of admitted that the Star's supposed investment in Multitel amounting to P716,000.004 is still current, but this time with MII-I. Even the investments he placed with Multitel in the amount of P1,000,000.00 prior to the issuance of the CDOs against Multitel on March 8, 2001 and January 15, 2002 are still intact and current, only that these are also now in the name of MIH. He even boasted that he was one of the pioneer counselor and prime-mover of Multitel, except that the counselors were dispersed to the different cooperatives in order to comply with the scheme of pooling together in several entities, in their case, a cooperative, the original 238 investors found to exist in the books of Multitel as of February 16, 2001, which was one of the bases for the issuance of the CDO of March 8, 2001. 4 See Annexes "W", "WW" and "XX" of the CED Motion MIHI is engaged in other questionable dealings and practices. These include: Aside from the above-discussed transactions, the CED also discovered that (a) Misuse of corporate funds to finance the operatioris and activities of puirportedly related corporations and cooperatives, of which MIHI is actually not a stockholder and activities of purportedly related entities, Cellmode, Inc. and MMC Holdings, Inc. Insurance Building, which, the CED discovered, is occupied by MMC Hoidings, Inc. that MIHI had been using corporate funds to finance and 'subsidize the operations firm Diaz Murillo and Dalupan to Cellmode, Inc. for the year ending December 31, 2001. MIHI also paid for the rentals due on Room No. 907 of the National Life These subsidies were made by MlHI notwithstanding that based on Cellmode, Inc's Based on these documents, MIHI paid for the services rendered by the accounting deried any connection with MIHI. Its Chairman of the Board, Jesper Frantzich and MMC Holdings, Inc's corporate records, MIH is not in fact a stockholder of either company aor is either company a shareholder of MII-II. Cellmode, Inc. even issued a Certificate dated June 26, 2002 stating that the present stockholders of Cellmode, Inc. are the original shareholders at the time of its incorporation, which do not include MIHI. Additional documents secured by CED investigators from MIHI5 disclosed (b) Misrepresentation of investment of funds in MIH's books of account. Subsidiaries" in the aggregate amount of P73,557,000.00. A cross-reference of the consist of the following: Motion) listed as part of the company's assets its supposed "Investments to said entry in the Balance Sheet with the credit entry in MIHI's Trial Baiance as of June 14, 2002 (Annex "PP" of the CED Motion) showed that these investments The Balance Sheet of MIHI as of May 31, 2002 (Annex "OO" of the CED Multitei Communications Muititel Consultancy P10,000,000.00 625,500.00 Rosegold Hotel RAB Realty Cellmode Richville Travel and Tours 51,000,000.00 5,000,500.00 6,250,000.00 625,000.00 (Arnexes "MM" to "MM-2" of the CED Motion), MIHI holds investments or equities Rosegold Hotel & Resort, Inc. This investments account for only P5,626,000 of the the Multitel Group of Companies, which MIHI itself fumished the CED investigators only in two domestic companies, namely, Multitel Consultancy Group, Inc. and It should be noted, however, that pursuant to the list of Corporations Under total investments entry in the Balance Sheet. 5 Refer to Annexes "CC", DD, "EE, "FF, "GG", "HH","I" and its sub-annexes "II-" to !I-4", "JJ" and. its sub-annexes "JJ-1" to "JJ-2", and "KK", -LL", "MM" and its sub-annexes "MM-1" to "MM-2", and "NN" of the CED Motion 8 Baladjay, MIHI's President and Chairperson. No document has however been corporate legal counsel of MIHI, and Charito Mayapis, MIHI's Vice President for Communications Corp., RAB Realty, Inc. and Richville Travel and Tours, Inc. in the aggregate amount of P16,875,000.00 in the name and for the account of Rosario ownership of these investments to MIHI as of the date of the entry in the Balance Sheet and the date of the entries in the Trial Balance. Finance, it was disciosed that MIHI paid for investments in Multitel presented to the CED investigator that Rosario Baladjay already trarsferred the In the course of the CED investigators' interview with Atty. Edgard Smith. investment in Cellmode International, Inc., a corporation incorporated and registered in the British Virgin Islands, appears to be spurious. A Letter Reply from the Registry of Companies, Trade Marks and Patents of the Government of the British Virgin Islands dated August 15, 2002, which was made in response to the CED's earlier request for information on the registration of Cellmode Intenational, Inc., stated that at $50,000.00. MIHI could not have therefore legally made such an investment. as of such date, the authorized capital stock of Cellmode International, Inc. remains Moreover, the P51,000,000.00 (the alleged Peso equivalent of $1,000,000.00) P67,875,000.00, which funds were generated from its operations- ie., investments Hade by the public. The foregoing shows that MIHI is unable to account for funds amounting to regulations that are being enforced by the Commission: Everflow, Oneheart and/or Star of the following violations of law, rules and The foregoing body of evidence makes manifest the perpetration by MIHI, () of the SRC and Section 6 (l) (2) of Presidential Decree No. 902-A Violation of Section 45 of the Corporation Code in relation to Section 5.1 (m) Code shall possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred". Section 45 of the Corporation Code provides that "no corporation under this It is evident from the primary purposes of the respective articles of incorporation of MIHI and Everflow that neither company is authorized to engage in the business of offering or selling investment contracts to the public. MIHI is consulting company. In fact, both MIHI and Everflow are explicitly and specifically proscribed by the terms of their respective primary purposes to engage in business as registered as a holding company while Everflow is organized as a management a stockbroker or dealer in securities. Since investnents contracts are securities? and considering that the offering and/or sale of securities are not germane to the primary purposes for which either MIHI or Everflow is organized, neither company can 6 AIso refer to Annexes "QQ", *RR", "SS". "TT" and "UU" of the CED Motion Section 3.1 of the Securities Regulation Code. of the Corporation Code. The above-discussed evidence culled by the CED clearly proves that MIH and Everflow have been engaged in the business of offering for sale or selling investment contracts/securities to the public, either for its own have therefore committed"not merely ultra vires but downright illegal acts in engage in the offering or sale of securities as a business without violating Section 45 account (in the case of MIH) or for the account of another (in the case of Everflow), in utter disregard of the express prohibition in their articles of incorporation. Both violation of Section 45 of the Corporation Code. These acts constitute fraud and investors who made placements with MIHI in the mistaken belief that MIHI is Iegally authorized to solicit and accept investnents from them. misrepresentation perpetrated against the investing public, particularly on MI-I's (b Violation of Sections 8.1, 26.1 and 26.3, 28.1 of the SRC distribution of securities within the Philippines without a registration statement duly filed with and approved by the Commission. Further, the SRC, under Sections 26.1 and 26.2 makes it unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: (i) empioy any device, scheme or artifice to 28.1 of the SRC provides that "no person shall engage in the business of buying or defraud, or (ii) engage in any act transaction, practice or course of business which operates or wouid operate as a fraud or deceit upon any person. In addition, Section selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated person of any broker or dealer uniess registered as such with the Commission Section 8.1 of the SRC specifically prohibits the sale or offer for sale or that MIHl have been offering for sale and in fact selling to the investing public have not been duly registered with the Commission. Considering that MIHI's investment Based on the records of the Commission, the investment contracts/securities contracts/securities are neither exempt from the registration reguirements of the SRC, as these are not considered exempt securities under SRC Section 9, nor are the same being offered for sale or sold pursuant to an exempt trarsaction in accordance to sell investment contracts to more than nineteen (19) non-qualified buyerss, it is evident that MIHI has violated Section 8.1 of the SRC. with SRC Section 10 in relation to SRC Rule 10.1 (k), as MIHI has sold and continues offer for sale or sell MIr-I's investment contracts to the public for MIHI's account and Oneheart and Star is a registered securities broker or dealer and yet, these entities Fwrther, the Commission's records confirm that not one among Everfiow, buy these securities for the account of the individual investors. The "courselors" that not registered with the Commission as securities salesmen or associated persons. Everflow, Oneheart and Star has engaged to carry out the offering or sale to and purchase by the investing public of MIHI's investment contracts/securities are also Everflow, Oneheart and Star have therefore violated Sections 28.1 and 28.2 of the SRC % To know who are considered qualified buyers, refer to Section 10.1() of the SRC 3 Refer to the negative certificatian by the Director af the Market Regulations Department of this Commission, attached as Annexes -ZZ", -AAA", -BBB" and -CCC" of the CED Motion 1 investing public in the course of offering for sale or selling MIH's investment contracts by representing to its investors that they are legally authorized to solicit and accept investments from the public and to enter into investment contracts, despite knowing fully well that the securities they offer for sale or sell are unregistered and that they themselves are not authorized securities brokers or Sections 26.1 and 26.3 of the SRC. dealers and cannot be registered as such. These constitute a marifest violation of More importantiy, MIHI, Everflow, Oneheart and Star have deceived the is premised on the need to prevent fraud on investors or grave or irreparable injury Commission any sale, offer for sale or distribution of securities within the Philippines or prejudice to the investing public. The rigidity of securities registration requirements is intended to ensure full disclosure and to provide symmetry of information to investors thereby making the value of the securities as offered to investors accurate. During the registration process, the Commission, as regulator, is given the opportunity to: (a) evaluate whether the information provided for in the of a business venture, transaction, contract or undertaking, and (b) confirm whether the mechanisms that the law puts in place for the protection of the investors are observed. Thus, the saie, offer for sale or distribution in the Philippines of any securities required to be registered, without a registration statement duly approved by the Commission, creates information asymmetry and market distortion, and registration statement is sufficient to apprise the investors of the risks and prospects investing public to grave or irreparable injury and extreme prejudice. renders nugatory the legal mechanisms for investor protection thereby exposing the It should be emphasized that the legal requirement to register with the not passed through this rigorous registration process, the soundness of these selling to the public, through its conduit entities Everflow, Oneheart and Star, have securities as investment instruments cannot be readily ascertained by MIH's individual investors, which makes these investors vulnerable to fraud. This is precisely a situation that the Commission can never countenance. Considering that the investment contracts that MI-II is offering for sale or contravene the Commission's policy to provide and ensure a level playing field for the Philippine securities market. injustice to Iegitimate issuers and brokers or dealers of securities who take the painstaking effort to disclose material information to the investing public by undergoing the securities registration process of the Commission. Such would compliance with the SRC is to give it an unwarranted advantage and cause grave Further, to allow MIHI and its conduits to continue to deliberately evade () defiance of its lawful orders Contempt of the Commission through refusal to comply and continued been permanently enjoined by the Commission from soliciting and accepting By continuing the business and operations of Multitel, after the same has 11 investments from the public, MIHI, Everfiow, Oneheart and Star committed contumacy against the Commission, an act that is punishable under the SRC. the CED, particularly the pronouncements in the "Rainmaker", the "veiled threats" is no question that MIHI was incorporated, organized and operated to serve as an alter-ego of Multitel to ensure continuity of the Iatter's business. It is noteworthy that MIHI was incorporated after the first CDO was issued against Mutitel on March 8, 2001 and after MuItitel undertook in June 2001 to reduce the number of its investors to less than nineteen. MIHI is owned lock, stock and barrel by the same interests that in the letter of Iris Aquino to Rosario Baladjay and the statements of Jose Rico, there control Multitel. Further, Mill's finances, policies and business practices are steered by the same hands that guided Multitel's-- by Rosario Baladjay, the President and Chairperson of both companies. Her position enabied Rosario Baladjay to wield control over MIF and facilitate the circumvention of the Commission's prohibitions Based on the admissions contained in the documents that were gathered by through the offer for sale or sale of unregistered securities, thereby exposing the investing public to grave injury or prejudice. against Multitei, as indicated by the perpetration of the same scheme and the employment of the same conduits to unlawfully solicit investments from the public Although MIHI and Multitel are corporations separately registered with the Commission, the law allows the Iatter to pierce the veil of corporate fiction when circumstances of fraud are evident. As heid by the Supreme Court, "the corporate fiction of the notion of legal entity may be disregarded when it is used to defeat the law will regard the corporation as an association of persons or in case of two pubiic convenience, justify wrong, protect fraud, or defend crime, in which instances Corporations, will merge them into one," (Remo, Jr. vs. Intermediate Appellate Court, 172 SCRA 406, April 18, 1989). The corporate veil may also be pierced where it is used to 'promote unfair objectives" (Villanueva vs. Adre, 172 SCRA 876). Based on the discussion above, this is one instance when piercing the corporate veil is an imperative. Thus, by selling investment contracts to the public in continuation of Multitel's operations, MIHI, being but an extension of MuItitel's personality, flouted the Commission's Iawful orders for Multitel to cease and desist from accepting investments from the public. Everfiow, Oneheart and Star, by allowing themseives to be used as MIHI's marketing institutions, as borne out by the evidence, became willing instruments for the circumvention of the Commission's CDO against Mulitel. They have thus defied the same CDO that also operates against them as conduits, and in the process made themselves liable for contempt of the Commission. curtail these illegal activities and to protect the investing public from the In the light of the foregoing, it is now incumbent upon the Commission to machinations of MIHI, Everflow, Oneheart and Star. 12 International Hoidings, Inc., its officers, directors, agents, representatives, conduits. assigns and any and all persons claiming to act and/or acting for and in its behalf or not be made PERMANENT. under its authority are hereby ordered to immediately CEASE AND DESIST from accepting investments from the public and to SHOW CAUSE why this CDO shouId WHEREFORE, pursuant to the authority vested in the Commission. Multitel accepting investments from the public encompasses Oneheart Multipurpose Cooperative, Everflow Group of Companies, Iric. and Star Enterprise Multi-Purpose Cooperative as conduits of Muititel, and considering further that the said CDO has hereby PERMANENTLY ENJOINED, under pain of CONTEMPT, from offering, soliciting, accepting or facilitating the acceptance of investments from the public. never been lifted and remains binding against these three entities, the said CDO is REITERATED against Oneheart MuItipurpose Cooperative Everflow Group of Companies and Star Enterprise Multi-Purpose Cooperative. These entities are Considering that the CDO issued by this Commission enjoining Multitel from DRECTED to ensure strict compliance by the aforementioned entities with this Cease and Desist Order. For this purpose, the CED is hereby AUTHORIZED to assign any of its persornel or agents or to deputize personnel of other agencies of the government to monitor compliance with this CDO by establishing physical presence within the premises of these entities. The Compliance and Enforcement Department of this Commission is hereby . extendible period of five (5) days from receipt hereof. Inc. may file a request for the lifting of this Cease and Desist Order within a non- otherwise known as the Securities Regulation Code, Multitel International Holdings. In accordance with the provisions of Section 64.3 of Republic Act No. 8799. SOORDERED Mandaluyong City, Metro Manila. September 10, 2002. LILIA R BAUTISTA Chairman FE ELOISA C. GLORIA JOSELIALPOBLADOR * Commissioner Cammissioner NTIALCDO.0910/AD-MLLT11EL2718 N MA JUANITA E. CUETO Commissioner ui re JESUS ENRIQTE Comissioner MARTINEZ *on official leave E